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After an acquisition, consider a new noncompete agreement

On Behalf of | May 3, 2022 | Business Transactions

As a business owner, you know which information you have that is proprietary. You know which trade secrets could harm your business if exposed, and you take steps to prevent that from happening.

You may have a noncompete agreement in place with your employees right now, but what happens if an acquisition occurs? Will your noncompete stay in place, or will there be a risk of your secrets being exposed to your competitors?

Noncompetes may not be affected by all acquisitions

Usually, if your business maintains its own existence from the acquiring company, then you can still enforce the noncompete. For example, if your Company A will continue to work under its original name but is now under the umbrella of companies owned by Company B, nothing should change.

The exception to this rule might be if your company is absorbed during the acquisition. If Company A becomes Company B, then the employees no longer have a binding contract with Company A at all. Instead, Company B will need to set up a new relationship with employees, making sure to include the noncompete again.

If your company is being acquired in a merger, it may be possible to include a noncompete agreement in the merger for all employees who are retained. Those employees may need to agree to sign a new contract, though, which some may not agree to do.

What should you do to enforce noncompete agreements when employees are terminated?

Usually, acquisitions do lead to some loss of talent, though that it not always the case. The people who lose their jobs or leave the company may go to work for competitors. It’s reasonable to attempt to enforce the noncompete agreement, but the circumstances may have created a loophole if the original company no longer exists.

It’s valuable for you to learn more about business law and your company’s options as you go through an acquisition or merger, so you can take steps to protect your intellectual property, trade secrets and more. With the right approach, you may get the opportunity to enforce a noncompete agreement and prevent talent from leaving the company and turning to your competitors for work.